Africa’s most populous nation is getting almost nothing from its massive oil wealth.
While headline Brent-crude futures have rallied sharply in the past few weeks — rising above $30 a barrel on Tuesday — a glut of Nigerian oil is fetching about $10 less than that. It’s a level that means fiscal revenue for the continent’s biggest economy has cratered.
“It’s now dawned on everyone across the country how severe this threat is,” said Andrew Nevin, a partner and chief economist for Nigeria at PricewaterhouseCoopers LLP. “There is a possibility that at least for three to five years, there’s going to be no revenue flowing to the government from oil.”
Nigeria’s plight is playing out across the world: from Venezuela to Iraq and Iran, petrostates are grappling with the same bleak future — one where their prized commodity is worth a much less than it was, and where private companies often still want their cut.
Nigeria is faced with the twin challenge of dealing with the Covid-19 pandemic itself, and a slump in the price of crude, Finance Minister Zainab Ahmed said in a webinar on Tuesday.
“It’s a double whammy,” she said. “This has set us back significantly.”
Global efforts to fight the spread of coronavirus have driven oil prices so low that they no longer cover the cost of pumping barrels for many companies in Nigeria — let alone providing the government with crucial cash.
Nevin of PwC said at a webinar on April 30 that when oil prices are at around $20 a barrel, Nigeria gets very little for its oil. The commodity normally contributes about half of fiscal revenue.
Call the IMF
The rout has been so severe that, having resisted borrowing from the International Monetary Fund for many years, Nigeria has secured its first ever loan — $3.4 billion — from the Washington-based organization to help plug some of the holes that appeared in the country’s 2020 spending plan. It’s also asked to borrow a further $3.5 billion from other development institutions, including the World Bank.
As of late April, the IMF was predicting Nigeria’s economy would shrink by 3.4% this year. Previously, it was anticipating 2% growth.
“It is no longer a secret that government revenues have collapsed,” said Clement Agba, minister of state for budget and national planning, at the webinar on Tuesday.
Even before the coronavirus halted mass-transportation systems and trashed oil demand, the rise of U.S. shale oil was already proving uniquely challenging for Nigeria. Booming production from shale drastically cut Nigerian exports to the U.S. — once the destination for about 40% to 50% of the country’s cargoes.
Despite near rock-bottom prices, traders said on Tuesday that about a quarter of Nigeria’s crude oil cargoes for loading this month have yet to find buyers. They should normally have been sold out by now.
“Globally the crude oil market is very slow and we are not able to sell as much crude as we used to do before,” Finance Minister Ahmed said.
At least six tankers carrying about 4.5 million barrels of the country’s crude have been floating off Gibraltar and nearby Ceuta — just inside the entrance to the Mediterranean Sea from the Atlantic — since as long ago as the end of March, according to tanker tracking data monitored by Bloomberg. A seventh vessel is about to join them. In normal markets, those barrels would go straight to oil refineries for processing into gasoline, jet fuel and other products.
Nigeria started this year projecting it would sell oil at $57 a barrel, then it revised that down to $30 a barrel, and then $20. Oil revenues will decline by $26.5 billion this year, down from $54.5 billion in 2019, according to the IMF.
“This is a period of crisis,” said Fortune Obi, who works for Shell Nigeria and is a spokesman of the country’s oil union for senior workers. “Job losses are imminent across the petroleum industry. The impact of this will start reflecting from June and July. The reality is that some members will certainly be impacted. What matters most to us is how to manage the process of any of such expected exit.”
Another concern in Nigeria is that a period of economic distress could lead to a return of social unrest that dogged the country as recently as 2016. The Niger River Delta, at the heart of Nigeria’s crude production, has suffered bouts of militancy and violence for years, with oil facilities targeted by people claiming they were unfairly treated by the government and big oil companies.